Factory reset seems a little harsh for a minor issue such as that. I have the same problem from time to time on my Galaxy S2 as well. I notice that when it happens to me though, my bars are lower and my data speeds are most likely lower as well. Could be an AT&T problem, but my bet is that a lot of minor issues the Galaxy S2 has will be fixed with the ICS update... now we wait

I believe this is a problem with At&t's network, my Nexus One had the same issues. Would send people pictures and they would never receive it or I would never receive pictures from them. This is also now happening on my SGS2. When I originally had the problem I contacted the Nexus One support line (which at the time was run by Google and was fantastic) and talked with a rep for a few hours trying to rectify the problem. In the end they sent me a brand new Nexus One but to no luck.

Hello,
I've noticed the same issue with my Samsung Exhibit II through Walmart's pre-paid plan with T-mobile over the last month or so.
The texted pictures used to work fine and all of a sudden every incoming text with a picture gives me only the file size and "downloading". Has anyone ever figured out a way to resolve this?

For anyone with this same issue where picture messages do not display when sent to your phone by someone else, I finally found the solution. Here is a page from the T-mobile forum that describes resetting the APN settings. They describe how to reset the settings back to default and now all incoming picture messages are downloading and displaying correctly.